by Jonathan Todd
John McDonnell is bringing to mind the Gordon Brown of the 1992 parliament, while George Osborne is coming to appear the Brown of the 2005 parliament. Where Brown had neo-endogenous growth theory, McDonnell has an entrepreneurial state; both have public investment at their core. Where the later Brown had 10p tax, Osborne has tax credits; too clever by half missteps by Stalins transfiguring into Mr Beans.
“Business investment is falling,” McDonnell noted in a speech last month. “Exports are falling. The productivity gap between Britain and the rest of the G7 is the widest it has been for a generation. Without productivity growth, we cannot hope, over the long term, to improve living standards for most people.”
It is a powerful critique, grounded not in the overthrow of capitalism but in making it work more efficiently. Notwithstanding their divergent accents, you can close your eyes and imagine Brown, as shadow chancellor, castigating the Major government. Or more recently, Ed Balls attacking the Cameron administration.
The fiscal rule that McDonnell espoused in his speech might be interpreted as a crisper version of that which Balls took Labour into the last election with. The practical consequences of the McDonnell and Balls fiscal rules may be little different but McDonnell more explicitly backs capital spending.
“We believe,” McDonnell declared, “that governments should not need to borrow to fund their day-to-day spending.” This hawkish position on current spending contrasts with a more dovish approach to capital spending. “Alongside this, we recognise the need for investment which raises the growth rate of our economy by increasing productivity as well as stimulating demand in the short term.”
The conflation of current and capital spending has unhelpfully mudded the fiscal debate. It is sound economics to more sharply distinguish them. Whether it is politically effective is more uncertain. In pursuing the economically sensible strategy of bearing down on current spending, while privileging the capital spending that does most to drive growth, McDonnell leaves enough room for Osborne to deride him as profligate.
The returns, however, to allocating blame to Labour “over spending” must be diminishing for Osborne. The longer he is in office, the more he is required to stand on his own record. “The question is whether his plan makes sense. The answer is no,” Martin Wolf lamented not long ago in the Financial Times.
“If,” Wolf went on, “the government is in a position to invest by borrowing at low real interest rates, as now, it makes sense to do so.” The chief economics commentator at the Financial Times sounds, therefore, more like McDonnell than Osborne. We might wonder how long this can persist before Labour recovers a lead on the economy. Perhaps till memories fade of McDonnell throwing Mao Zedong’s Little Red Book around. Or suspicions subside that he wants to abolish McDonalds.
In other words, no matter how sensible McDonnell’s ideas for the better working of capitalism, the perception may be hard baked that he wants to junk it. He doesn’t help himself in this regard by making speeches that push for Trident to scrapped, while not mentioning the EU referendum. The referendum is much more economically significant than Trident and the referendum is also the issue to major on if McDonnell seeks Labour unity.
It is welcome that Brown is soon to make a speech on the referendum. It was less so when he used to speak of “no more boom and bust”, displaying a bizarre complacency about the inherently cyclical nature of market economies. As did Balls with his flat lining gestures at PMQs. Booms and busts follow one another as surely as night and day.
The question was never whether growth would recover under Osborne but whether he’d do enough to “fix the roof while the sun is shining”. In spite of his rhetoric, Osborne’s aversion to investment means structural weaknesses are uncorrected. Now the next recession draws nearer, as it always does, with little sense that we are more resilient than the last time around.
The perception that Labour under Corbyn are unelectable may have left Osborne with a belief that none of this, ultimately, politically matters. But Corbyn polling ahead of Osborne on best PM may be a sign that Osborne’s politically cynical and economically damaging decision-making may, finally, be rebounding on him.
As for alternatives to Osborne as next Tory leader, Boris Johnson’s stock will fall if his Brexit gamble doesn’t pay off, Theresa May might lack a popular touch, and none of the new pretenders (Stephen Crabb, Nicky Morgan, etc) really convince. There is a building sense of ‘apres moi le deluge’ about Cameron.
Corbyn won’t lead his party forever either. Whoever the next Labour leader is, and whenever they emerge, they’ll be assisted by Labour now uniting around the issues that we can unite around – McDonnell’s hawkish approach to current spending and dovish stance on capital spending; Corbyn’s call for remain and reform on the EU. Rather than bloodletting on issues like Trident that are internally divisive.
McDonnell’s economics may have a Brown in the 1992 parliament vibe but this needs to be aligned with the same political discipline required to retain party unity and ruthless hunger to return to power that Labour had in the same parliament. Given the mounting problems facing Cameron and Osborne, the returns to this should not be underestimated.
Jonathan Todd is Deputy Editor of Labour Uncut